If ping works then hardware connections are OK. so the problem is with the settings. Check the obvious things (although these should be OK if the network was working previously):
You have a shared folder on each computer;
The network name (e.g. MSHOME) is the same on each computer;
Each computer has a unique name.
I must say that my first thought was firewall. Do you use the firewall built into XP or do you use a separate firewall. Are you sure the XP firewall is not active?
Perhaps some feature of the router is preventing file transfer. What model of router is it?